Highlights:

• A federal appeals court has ruled most of President Trump’s emergency tariffs illegal, intensifying market uncertainty.

• The Supreme Court is expected to decide whether the administration can continue using emergency powers to impose sweeping tariffs.

• Businesses and investors face mounting uncertainty as import costs swing wildly, with over $100 billion in tariff revenue at stake.

Legal Setback Throws Trade Strategy Into Turmoil

President Donald Trump’s effort to reshape the global trading system through aggressive tariffs has hit a significant legal roadblock. A federal appeals court ruled that the administration’s use of a 1977 emergency powers law to justify broad tariffs is unlawful, casting doubt on one of the central mechanisms of his trade war. While many trade experts anticipated such a decision, the ruling creates fresh uncertainty for importers, global supply chains, and markets already grappling with volatile trade flows.

The case, which now appears headed for the Supreme Court, will determine whether Trump retains the authority to impose sweeping tariffs under the International Emergency Economic Powers Act (IEEPA). For now, the tariffs remain in effect until at least October 14, but the potential invalidation of billions in duties has left businesses questioning how to manage shipments, pricing, and long-term strategy.

The Fragile Basis of Emergency Powers

Trump has relied heavily on IEEPA to declare trade deficits a “national emergency,” thereby imposing reciprocal tariffs ranging from 10% to 50% on goods from virtually every major U.S. trading partner. The appeals court rejected that justification, noting that persistent trade imbalances do not meet the definition of an emergency, and that the law itself makes no mention of tariffs or taxation, which are typically the prerogative of Congress.

According to the Tax Foundation, nearly 78% of new tariff revenue since the start of Trump’s second term has come from these emergency duties. If the Supreme Court strikes them down, it could invalidate over $100 billion collected so far, forcing the government to consider refunds and leaving the administration scrambling for alternative legal tools.

Market Impact: Uncertainty and Volatility

For importers, the immediate effect is heightened unpredictability. Import flows have already shown extreme swings in 2025, with shipments surging when exemptions seemed possible and collapsing when tariff windows closed. Companies now face the prospect of paying duties they may later recover, complicating pricing strategies and squeezing margins. The uncertainty could discourage investment and exacerbate inflationary pressures if firms continue to pass costs along to consumers.

Markets, meanwhile, must grapple with the dual risk of a protracted legal battle and the possibility of retaliatory measures from trading partners. China, India, and Brazil—among the countries most affected—have signaled they are prepared to escalate disputes if U.S. tariffs persist. That geopolitical tension adds another layer of complexity for investors already navigating shifting interest-rate expectations and slowing global growth.

What Comes Next for Trump’s Trade War

Should the Supreme Court side against the administration, Trump would lose one of his most powerful tools: the ability to unilaterally impose sweeping tariffs under the guise of emergency action. He could still resort to narrower, product-specific tariffs under other statutes, citing national security or unfair trade practices, but these measures are slower to implement and face their own legal hurdles.

For businesses and markets, the coming months will be critical. Importers may delay shipments until the Supreme Court rules, while exporters wait to see whether retaliatory barriers remain in place abroad. Investors, meanwhile, must weigh the potential unwinding of $100 billion in duties against the likelihood that Trump seeks new avenues to maintain pressure on trading partners.

The trade war, already defined by abrupt shifts and escalating costs, is now entering a new phase where legal battles could matter as much as economic strategy. Whether Trump can preserve his leverage—or whether the courts strip it away—will shape the trajectory of U.S. trade policy and global markets well into 2026.